SIGMA: a new open economy model for policy analysis

Christopher John Erceg, Luca Guerrieri () and Christopher Gust

No 835, International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)

Abstract: In this paper, we describe a new multi-country open economy SDGE model named "SIGMA" that we have developed as a quantitative tool for policy analysis. We compare SIGMA's implications to those of an estimated large-scale econometric policy model (the FRB/Global model) for an array of shocks that are often examined in open-economy policy simulations. We show that SIGMA's implications for the near-term (2-3 year) responses of key variables are generally similar to those of FRB/Global. Two features of our modeling framework, including rational expectations with learning, and the inclusion of some non-Ricardian agents, play an important role in giving SIGMA more flexibility to generate responses akin to the econometric policy model; nevertheless, some quantitative disparities between the two models remain due to certain restrictive aspects of SIGMA's optimization-based framework. We conclude by using long-term simulations to illustrate some areas of comparative advantage of our SDGE modeling framework. These include linking model responses to underlying structural features of the economy, and fully articulating the endogenous channels through which "imbalances" arising from various shocks are alleviated.

Keywords: Macroeconomics - Econometric models; Business cycles - Econometric models (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cmp, nep-dge and nep-mac
Date: 2006
View list of references View citations in EconPapers

Downloads: (external link)
http://www.federalreserve.gov/pubs/ifdp/2005/835/default.htm (text/html)
http://www.federalreserve.gov/pubs/ifdp/2005/835/ifdp835.pdf (application/pdf)

Related works:
Working Paper: SIGMA: A New Open Economy Model for Policy Analysis (2006)
Journal Article: SIGMA: A New Open Economy Model for Policy Analysis (2006)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:fip:fedgif:835

Ordering information: This working paper can be ordered from
http://www.federalreserve.gov/pubs/ifdp/order.htm

Access Statistics for this paper

More papers in International Finance Discussion Papers from Board of Governors of the Federal Reserve System (U.S.)
Contact information at EDIRC.
Series data maintained by Diane Rosenberger ().